Crocs: Revolutionizing an industry’s chain model for competitive advantage Executive Summary: Crocs, Inc. experienced astonishing growth within a short period of time and managed its highly flexible supply chain in ways which enabled Crocs to build additional product within the selling season. Building within the selling season made Crocs take advantage of strong customer demand, resulting in the company filling in-season orders totaling many times that of the initial pre-booked orders. But on the other hand Crocs, Inc. as a problem with high excess capacity and inventory levels which could be a threat to the company because so much money is tied up in assets. Crocs should try not to make everything in house but also outsource non-core manufacturing processes to other companies in order to cut costs and have capacity for core products. Organizational Profile/Overview: Crocs, Inc. was established in 2002 in the U. S. and is one of the fast growing companies and brands in the world. Crocs, Inc. designs, manufactures and sells footwear and accessories for men, women and children of all ages in about 100 countries worldwide.
The shoes are made of closed-cell resin, which is some kind of soft plastic and which offers high comfort and perfect fit. The shoes are light-weight, slip resistant and odor-free. The footwear industry can be regarded to be at an saturated stage, but the demand for footwear is unlikely to drop dramatically. Crocs, Inc. used word of mouth marketing through its small retail customers and then was approached by large retail customers as well. The company also went to trade shows, public events, worked in stores and maintained a cordial working relations with its retailers and distributors.
The manufacturing process as well as the design is done in house in a vertically integrated way in order to have more control over their activities. Crocs, Inc. used to work with contractors but brought the supply chain in house. By bringing the supply chain in house Crocs, Ins. was able to reduce the lead time between the company and large retailers. In addition in house manufacturing made it possible to flexible with prices, meet customer demands and allow small retailers to order small quantities. Critical Issue(s) / Problem Statement: Excess capacity in form of molds and molding machines * Excess inventory in order to react to meet changing market demand on a short notice (almost 3 times the total fixed assets of the company) *
Excess sunk capital in Denver (underutilized because it only catered to small customers in the U. S. and was sent shoes from manufacturing plants in China) * Increased risk due to high capital expenditure incurred in product development * Frequent transferring of molds between product locations is not cost effective * A lot of money is tied up in assets * A threat of knock-offs Low inventory turn-over ratio Holding excess stock is usually done by manufacturers in order to overcome forecast errors. Crocs however seems to think that holding excess stock is normal practice, which is misleading in my opinion. Crocs, Inc. held about 1 million pairs of shoes as excess capacity which would hold up valuable financial resources for the company. By only concentrating on consolidating assets as well as creating this complex supply chain network, the company might be losing sight of its competitive advantage and its key areas of operations. Affected Stakeholders:
The shareholders are affected by the excess capacity and excess inventory that Crocs holds. In case of a drop in demand or shift in customer trends, this might lead to a drop in share prices. In addition the retail customers would be affected by a dramatic increase in customer demand because it doesn’t seem like Crocs, Inc. would have enough capacity if the demand increased dramatically. This might to lead to Crocs losing customer loyalty. Alternatives: * Crocs, Inc could lease equipment to its suppliers and that way it could use excess facility or manufacture for other companies.
But leasing equipment to suppliers bears the threat that the suppliers would try and start a company like Crocs. * The company could focus on producing molding shoes in China only because of the low duty structure in exporting. In addition it should examine the rest of the world for its duty structure and then shift production by transferring production materials. But producing molding shoes only in China bears the threat that duties might change at some point or because of the governmental system in China. Furthermore Crocs, Inc. could try to externally integrate operations to drive down costs and improve efficiency. * Crocs could try to grow further by expanding their product lines for untapped markets. Crocs could try to use the Denver facility to and its capacity to distribute other products. Using the Denver facility would also cover minimum fixed costs of the company. * Crocs could try to grow further by making other acquisitions in order to outsource non-core manufacturing activities. But this would cost a lot of money.
Crocs could contract the manufacturing process of things like Jibbitz to other companies. * Crocs should also invest in marketing to build the brand and retain market share by doing countercyclical advertising. * Crocs should practice a more demand-driven supply chain. The new IT driven inventory management software will help forecast the demand and inventory level for Crocs more accurately. Focusing on a demand-driven supply chain could lead to stock outs though. Recommendation: I would advice Crocs, Inc. o outsource non-core manufacturing processes as well as contract small manufacturing processes to other companies because it will it will save Crocs capacity for its core products. This could be a huge costs saver because Crocs has a lot of bargaining power towards its suppliers and so this non-core products could be produced at a relatively low price. The problem is that Crocs, Inc. seems to be very fond of its in house supply chain. Outsourcing manufacturing processes can of course bear the threat of fraud.